The Hindu Business Line : An ordinary mail that didn't reach a director

DINESH, a director in a company, gave in writing to the company that notice for any general meeting and the board of directors' meeting be sent to him at his address in India only by registered mail and for which he paid sufficient money. The company sent two notices to him, of such meetings, by ordinary mail, under certificate of posting. Dinesh did not receive the said notices and could not attend the meetings wherein some important decisions were taken. Dinesh challenges the legality of the meetings and the proceedings thereof on the ground of improper notice. Decide in the light of the provisions of the Companies Act, 1956:

i) Whether the contention of Dinesh is valid?

ii) Would your answer be still the same in case Dinesh remained outside India for two months (when such notices were given and meetings held). (5 marks)

The problem is based on Section 53(2)(a) of the Companies Act. As per the said section, where a document is sent by post, it is enough if the letter containing the document is properly addressed and sent by ordinary post. But at the request of any member, notice may be served by registered post or under certificate of posting, provided the member has deposited adequate money to meet the expenses.

Thus, Dinesh's contention is valid.

Interim dividend

A PART of profits may be distributed before the accounts are finally passed and the declaration of the dividend sanctioned in the annual general meeting (AGM). Such a dividend is called interim dividend, which is paid between two AGMs of the company. Sub-section (1A) of Section 205 (added by the Amendment Act, 2000) empowers the board of directors of a company to declare interim dividend. Again, Regulation 86 of Table A of Schedule I of the Companies Act provides:

"The Board may from time to time pay to the members such interim dividends as appears to it to be justified by the profits of the company."

Till the passing of the Companies (Amendment) Act, 2000, there was no provision in the Companies Act (except Reg. 86 of Table A) relating to interim dividend. The Companies (Amendment) Act, 2000 has introduced clause (14A) in Section 2, whereby interim dividend is now part of dividend and accordingly all provisions of the Companies Act relating to dividends have become applicable to interim dividend as well.

However, before declaring interim dividend, the board should carefully assess the adequacy of profits since in the event of absence or inadequacy of profits, the distribution would amount to reduction of capital. The opinion of the auditors, therefore, must be obtained in this regard.

Postal ballot

EXPLAIN the provisions of the Companies Act, 1956 relating to the procedure to be followed for transacting business of the general meeting of members of a company through postal ballot.

i) Where a company decides to pass any resolution by resorting to postal ballot, it shall send a notice to all the shareholders, along with a draft resolution explaining the reasons therefor, and requesting them to send their assent or dissent in writing on a postal ballot within 30 days from the date of posting of the letter;

ii) The notice shall be sent either: a) by registered post acknowledgement due; or under certificate of posting; and b) with an advertisement published in a leading English newspaper and in one vernacular newspaper circulating in the State in which the registered office of the company is situated, about having despatched the ballot papers.

The notice shall include a postage pre-paid envelope for facilitating the communication of the assent/dissent of the shareholder to the resolution within the said period;

iii) If a resolution is assented to by a requisite majority of shareholders by means of postal ballot, it shall be deemed to have been duly passed at a general meeting convened in that behalf; and

iv) If a shareholder sends his assent/dissent in writing through a postal ballot and thereafter any person fraudulently defaces or destroys the ballot paper or declaration of identity of the shareholder, such person shall be punishable with imprisonment for a term which may extend to six months or with fine or with both.

Pre-incorporation contract

A COMPANY was incorporated on October 6, 2003. The certificate of incorporation of the company was issued by the Registrar on October 15, 2003. The company on October 10, 2003, entered into a contract which created its contractual liability. The company denies the said liability on the ground that company is not bound by the contract entered into prior to issuing of certificate of incorporation. Decide, under the provisions of the Companies Act, 1956, whether the company can be exempted from the said contractual liability. (5 marks)

The contract in question is a pre-incorporation contract. Pre-incorporation contracts, in general, are void ab initio and, hence, not binding on the company. However, under Section 19(e) of the Specific Relief Act, 1963 the party to the contract can enforce the contract against the company if: i) the company had adopted the same after incorporation; and ii) the contract is warranted by the terms of incorporation.

Thus, unless the company adopts the contract, the other party cannot enforce the same against the company. However, promoters can be held personally liable.

Meeting matters

EXPLAIN the provisions of the Companies Act relating to holding of annual general meeting of the company with regard to the following:

i) Period within which the first and the subsequent AGMs must be held.

ii) Business which may be transacted at an AGM. (5 marks)

The first AGM of a company may be held within 18 months from the date of its incorporation (Section 166).

However, as per Section 210, the first AGM of the company must be held not later than nine months from the date of the closing of its financial year.

Subsequent AGMs: a) There must be one meeting held in each calendar year. Where the first AGM of a company has been held within eighteen months from the date of its incorporation, then it need not hold another AGM in the year of its incorporation or in the following year. Thus, if supposing a company receives its certificate of incorporation on March 15, 2001, it will be in order if it holds its first AGM, say, in 2001 or 2002 (up to September 15, 2002). In case it chooses to hold its first AGM, say, on December 31, 2001, then it need not hold its next AGM in 2002.

The meeting adjourned to next calendar year does not become meeting of that year (Sree Meenakshi Mills Co. Ltd vs Assistant Registrar of Joint Stock Companies — 1938 8 Comp. Cas. 175 Madras).

b) The gap between two AGMs must not be more than 15 months.

c) Meeting must be held not later than six months from the close of the financial year [Section 210(3)(b)].

Extension of time: The Company Law Department (vide its letter dated January 13, 1972) has expressed the view that the Registrar can grant extension of time for special reasons up to a maximum period of three months, even if such extension allows the company to hold its AGM beyond the calendar year.

The aforesaid extension of three months can be given only by the Registrar. Courts are not empowered under Section 166 to grant the said extension (Nungambakkam Dhanarakshaka Saswatha Nidhi Ltd vs ROC, 1972).

(Suggested answers to the November 2003 CA (PE-II) paper on business and corporate laws.)

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